Housing Platform Crunch: Conservative Party

By Dr. Alan Walks (Professor, Geography and Planning, University of Toronto), Sean Grisdale (PhD Candidate, Geography and Planning, University of Toronto), and the Affordable Housing Challenge Partnership collective

Summary

Underlying the Conservative Party’s housing platform is a core belief that the private sector and the production of new housing supply “in general” is the ultimate solution to Canada’s housing woes. In our view, this platform is missing a major component necessary to building a balanced and affordable housing supply: policies that will help produce affordable market, non-market, and rent-regulated supply.  The conservatives do not actually voice a specific commitment to new rental housing numbers, although they do promote higher density of housing near transit stations. Indeed, there is little mention of “affordable” housing in their platform. In this platform, the housing crisis is blamed primarily on four scapegoats: lack of supply (which is odd given that housing starts have remained high over the last decade), foreign speculators, corruption, and money laundering. However, the implication that Canada’s housing affordability problems are primarily due to foreign actors is inaccurate at best, and ignores the significant role that domestic speculators and corporations (eg. REITs and Private Equity firms) also play.

Positives:

• Commits to transit-oriented housing infrastructure (though this is not a federal jurisdiction)
• Commits to incentives for private land donations to land trusts and cooperatives
• A Beneficial Ownership Land Registry will be key to identifying who owns real estate
• Commitments to a “For Indigenous by Indigenous” housing strategy
• Incentives for foreign investors to build affordable rental housing

Negatives:

• An overemphasis on policies expanding access to mortgages and homeownership will only continue to drive housing price inflation, as well as household debt levels
• No specific commitments to producing “affordable housing” (only “housing” in general)
• Relies on privatizing public land and infrastructure
• Commits solely to incentivizing private developers to increase private housing supply
• Their homelessness strategy has no direct housing component, and appears to assume homelessness is merely a by-product of addiction
• Overemphasis on foreign buyers as opposed to financialized and corporate buyers (both domestic and foreign)
• No intention to address role of domestic big business and speculation in the housing market

Deep Dive

The Conservative Party of Canada Platform:

There are five large multi-part policies or policy objectives related to housing in the Conservative platform.

Will this policy lead to housing that is more affordable? Unclear. This policy is based on the assumption that supply has not increased enough to meet demand, especially near public transit locations, and that an increase in supply near transit should make housing more affordable. While building more units near transit stations IS a laudable goal, and will help the household budgets of tenants who might not be able to afford a car, it is not clear that this policy on its own will affect average unit prices in any substantial way. Again, the devil is in the details. It is also not clear that municipalities are slowing down the building of new units near transit stations in any meaningful way, so there may not be much low-hanging fruit that this policy could help correct.

Will this policy lead to the production of new affordable rental housing? Maybe (unclear). This policy is intended to spur the building of new units near transit stations. While the tenure of these units is not mentioned, traditionally units in high-density buildings near transit are more likely than other units to be rented out on the long-term rental market, due to the higher level of demand for such rental units. So, it would be expected that this policy, to the degree that it helps produce new units, will in turn produce new rental units. However, it is not clear whether these new units would be affordable. If they are found in ‘luxury’ condo buildings, then these new units might have expensive rents.

Will this policy alleviate housing-based inequality? Potentially. The effect on housing-based inequality depends on whether the new units will include affordable rental units. Ideally, all the new units built near transit would meet the criteria for affordable rental units, and if this were the case, then this policy would improve housing-based inequalities. If, on the other hand, the new units built under this policy are expensive owner-occupied units, then it will have allowed higher-income households to benefit from this policy, producing greater housing-based inequalities.

1.2. Review the extensive real estate portfolio of the federal government – the largest property owner in the country with over 37,000 buildings – and release at least 15% for housing while improving the Federal Lands Initiative

Will this policy lead to housing that is more affordable? Unclear. This policy essentially states that the federal government will ‘release’ (sell off?) 15% of its 37,000 buildings to other owners for housing. That is, it appears to be a policy of privatizing public assets. Will these buildings be used to create affordable housing, or instead will they create housing that does not meet the criteria for affordability? Private owners typically target the upper-income segments of the market, as that is where the profits are greatest. A better policy, from the perspective of affordability and equity, would be to maintain public ownership of these buildings, and turn them into social affordable housing.

Will this policy lead to the production of new affordable rental housing? Unclear. Not only is it unclear whether the housing units that might eventually result from this policy be in the rental sector (vs the owner-occupied sector), but it is not clear whether the units would meet the criteria for affordability, or even whether this policy will result in a net growth of units.

Will this policy alleviate housing-based inequality? Unclear. If this policy results in the sale of public assets to private owners who target the upper-income segment of the housing market, it could create greater inequalities, without a parallel profusion of new rental units for lower-income households.

Will this policy lead to housing that is more affordable? Unclear. Allowing landlords to defer capital gains when trading properties certainly will ‘incent’ more trading, but it is not clear that this would make the units more affordable. It benefits the landlords. Meanwhile, the idea of converting office space to housing would have unclear affects, especially given there are no more details concerning what kinds of housing might be created, and at what price levels.

Will this policy lead to the production of new affordable rental housing? Unclear. Only the suggestion of converting office space to housing has the potential for creating new units, but no details are provided of whether these would be rental units, or how affordable they might be. If the federal government were to convert office buildings to social affordable rental (retaining ownership of the buildings), this would certainly produce new affordable rental units, but the policy does not state this.

Will this policy alleviate housing-based inequality? Unclear. The same lack of clarity, and issues that would have to be dealt with, are present here in the Conservative Platform as in the Liberal Platform on office space. A policy of converting offices to housing raises questions of where people in cities might work in the future. If lower-income households become forced to drive to far-away locations to find work, this could lead to new housing-based inequalities. The same comment applies to both the Conservative and Liberal policies in this regard. 

1.4. “Continue the Conservative commitment to Reconciliation with Canada’s Indigenous Peoples by enacting a “For Indigenous, By Indigenous” strategy [and]

Canada’s Conservatives are committed to putting a stop to federal paternalism and instead partnering with Indigenous communities and empowering Indigenous Peoples with the autonomy to meet their own housing needs.

Enhance the viability of using Community Land Trusts for affordable housing by creating an incentive for corporations and private landowners to donate property to Land Trusts for the development of affordable housing. The incentive will mirror that which exists for donating land to ecological reserves.”

Will this policy lead to housing that is more affordable? Yes. First of all, if Indigenous Peoples are given more power and control over their housing needs, as long as this is accompanied by additional resources to see their ideas to fruition, they will come up with better solutions for their own communities. Second, community land trusts have been shown to be a positive solution for creating and maintaining affordable housing in the long term. Federal incentives to donate land for community land trusts would help keep land out of speculative markets and help produce more stable and affordable housing.

Will this policy lead to the production of new affordable rental housing? Yes. Importantly, community land trusts typically keep the land in trust, and develop housing for either rent or long-term lease above ground. They are able to offer much more affordable rental rates over the long term.

Will this policy alleviate housing-based inequality? Yes. Not only would greater Indigenous control and power (as long as this is accompanied by sufficient resources) help Indigenous Peoples to create more equitable outcomes within their communities, this will help create a more equitable nation. Community land trusts, likewise, will help preserve housing within cities for a diversity of populations, at affordable costs, and in turn will help produce more equitable neighbourhoods and cities.

2. Root out the Corrupt Activities that Drive Up Real Estate Prices. “To root out the corrupt activities that drive up real estate prices and put homeownership out of reach, we will:

• Implement comprehensive changes to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, and give FINTRAC, law enforcement, and prosecutors the tools necessary to identify, halt, and prosecute money-laundering in Canadian real estate markets
• Establish a federal Beneficial Ownership Registry for residential property.
• Closely examine the findings and recommendations of the Commission of Inquiry into Money Laundering in British Columbia, which is doing important work, and quickly implement recommendations at the federal level.”

Will this policy lead to housing that is more affordable? Potentially. Currently it is not known to what extent fraud and money laundering have inflated real estate markets, so it is important to investigate this issue to provide solid reliable data. The Federal Beneficial Ownership Registry is a very positive step that would allow the public to identify the owners of property. Saying this, it is not clear that these policies would on their own reduce housing costs.

Will this policy lead to the production of new affordable rental housing? No. This policy is directed at existing housing and sales of new owner-occupied housing.

Will this policy alleviate housing-based inequality? Potentially. Fraud and illicit activity typically has a greater negative impact on lower-income households, and raises overall costs. As noted for the Liberal Platform, making the beneficial ownership registry publicly accessible would allow one to see who owns each property, which will enhance democratic procedures and perhaps put pressure on owners to be more responsible with tenants.

3. Arrest and Reverse the Inflationary Impacts of Foreign Buyers and Speculation. Stated Policy: “we will ensure that housing in Canada is truly for Canadian citizens and residents first…We will:

• Ban foreign investors not living in or moving to Canada from buying homes here for a two year period after which it will be reviewed.
• Instead, encourage foreign investment in purpose-built rental housing that is affordable to Canadians.”

Will this policy lead to housing that is more affordable? Unclear. As noted, foreign buying was already low before the pandemic, and has been minimal during the pandemic. A ban on foreign buying is not likely to affect prices or rents. At the same time, this policy seeks to ‘encourage foreign investment in purpose-built rental housing that is affordable’. It is unclear how this will be done. And how it is done matters a lot. Policies that encourage such foreign investment could stimulate REITs and other large firms to move more aggressively into rental markets, and this could lead to higher rents (because these firms often do not build new housing, but instead seek to squeeze more rent out of existing tenants). But if the policies could be fine-tuned to only stimulate the building of new rental units, this could go some way to making housing more affordable. The devil, once again, is in the details.

Will this policy lead to the production of new affordable rental housing? Yes. The policy explicitly seeks to ‘encourage foreign investment in purpose-built rental housing that is affordable’. It is not clear how many new units are being targeted, however, so it is difficult to say how much of an effect this policy will have.

Will this policy alleviate housing-based inequality? Not likely. As noted for the Liberal Platform, if there were a new wave of foreign buying on the horizon, the ban could stave that off, but there is no evidence of such a potential wave. If the other part of the policy stimulating foreign investment in new rental housing does create new units with affordable rents, this could alleviate housing-based inequalities, but there is not enough information in the policy statement to suggest that this would be the case. Also, importantly (as also noted for the Liberal Platform and the NDP Platform), a ban on foreign buying makes it seem like foreign buying is one, or perhaps THE, cause of the housing affordability crisis, when in fact there is no evidence of this; but the perception can lead to greater inequalities as a result of rising racism, xenophobia and discrimination.

4. Address Homelessness. Stated Policy: “To address homelessness, we will:

• Re-implement the Housing First approach, which has been watered down by the current federal government, to aid in the fight against Canada’s addictions crisis.
• Revise the federal government’s substance abuse policy framework to make recovery its overarching goal.
• Invest $325 million over the next three years to create 1,000 residential drug treatment beds and build 50 recovery community centres across the country.
• Support innovative approaches to address the crises of mental health challenges and addiction, such as land-based treatment programs developed and managed by Indigenous communities as part of a plan to enhance the delivery of culturally appropriate addictions treatment and prevention services in First Nations communities with high needs.”

Will this policy lead to housing that is more affordable? Unclear. This policy appears to assume that homelessness is mainly the result of drug addiction and mental health challenges, and not the result of a lack of affordable housing. Treating addictions and mental health challenges is very important, and coupled with Housing First strategies, this could benefit the homeless. However, the policy does not appear to also seek to reduce the cost of housing.

Will this policy lead to the production of new affordable rental housing? Not likely. It is unclear whether the ‘re-implementation’ of the Housing First approach will mean the addition of new units. Typically, Housing First strategies have used existing housing units in social housing buildings to house the homeless.

Will this policy alleviate housing-based inequality? Yes. Any additional help for those experiencing homeless will help reduce housing-based inequalities, although an acknowledgment that housing costs are also a factor creating homelessness, coupled with policies to reduce those costs, would be even more impactful.

5. Make Mortgages More Affordable. Stated Policy: “To make mortgages more affordable, we will:

• Encourage a new market in seven- to ten-year mortgages to provide stability both for first-time home buyers and lenders, opening another secure path to homeownership for Canadians, and reducing the need for mortgage stress tests.
• Remove the requirement to conduct a stress test when a homeowner renews a mortgage with another lender instead of only when staying with their current lender, as is the case today. This will increase competition and help homeowners access more affordable options.
• Increase the limit on eligibility for mortgage insurance and index it to home price inflation, allowing those in high-priced real estate markets with less than a 20% down-payment an opportunity at home-ownership.
• Fix the mortgage stress test to stop discriminating against small business owners, contractors and other non-permanent employees including casual workers.”

Will these policies lead to housing that is more affordable? No. Each of these four policies will increase housing and land prices, because they will allow bidders to borrow greater amounts when bidding for housing. The higher bids will drive up prices very quickly, defeating the purpose of these policies. So, while these policies may temporarily make ‘mortgages’ more affordable for the households who initially access these mortgages, the housing that is purchased with those mortgages will become more expensive, and over time even the mortgage payments will rise back to their current (or worse) level of affordability. The result will be more indebted home-owners, and higher prices. Rising prices in the owner-occupation sector over time will mean fewer can afford to own, pushing up competition in the rental sector, leading to rising rents as well (unless many new units of rental housing are also built).

While it may seem counter-intuitive to many readers, housing affordability would be more improved by making it tougher to get a mortgage, and by reducing the amounts one could borrow. This would reduce the average bids for property, producing more of an even playing field among buyers and sellers, and producing a soft landing in prices. The rapid rise in housing costs was caused by so many borrowers being able to take out such large mortgages. It is a debt-fuelled housing affordability crisis. Reducing the amounts that people can borrow will mean lower average prices over time.

Saying all this, the stress test should be made more equitable for small-business owners and the self-employed, and the requirement for conducting a new stress test should be removed when renewing a mortgage with another federally-regulated lender. These are good policies and should be implemented in the service of fairness, although they are not likely to affect overall average affordability in any way.

Will this policy lead to the production of new affordable rental housing? No. These policies apply to housing purchase.

Will this policy alleviate housing-based inequality? No. Instead, on average they are likely to lead to greater levels of inequality (with one caveat about greater equity between the self-employed and those with salaried jobs) due to rising housing prices. Rising prices will mean rising debt loads, which disproportionately affect lower-income households. And rising prices will mean more competition in the rental sector, leading to rising rents and greater rental inequality.